SEC v. BellSouth, Inc.

Defendant:

BellSouth, Inc.

Matter Type:

SEC Civil

Date Filed:

January 15, 2002

Full Case Name:

SEC v. BellSouth, Inc.

Citation:

SEC v. BellSouth Corp., No. 02-0113 (N.D. Ga. 2002)

Noteworthy:

Similar to IBM Argentina, the issuer in this case is charged with books and records violations based on the acts of its non U.S. subsidiary. In its pleadings, the SEC explicitly acknowledged that the U.S. parent was not aware of and did not participate in the subsidiary's conduct.

Industry:

Telecommunications-Other/Multi

Country:

Nicaragua, Venezuela

Date of Conduct:

1997; 1998; 1999; 2000

Officials:

The chairman of the Nicaraguan legislative committee with oversight of Nicaraguan telecommunications.

Facts:

BellSouth consented to a judgment penalizing it for violating the FCPA's "books and records" and "internal controls" provisions, without admitting or denying SEC allegations, because it did not properly record its subsidiary's payments to offshore companies in Venezuela and a Nicaraguan legislator's wife and lacked internal controls required to ensure FCPA compliance.

In 1997, BellSouth purchased a majority interest in Telcel, C.A., a Venezualan company, and Telefonia Celular de Nicaragua, S.A., a Nicaraguan company. Both Telcel and Telefonia are prominent wireless services providers in Latin America.

Between September 1997 and August 2000, Telcel senior management authorized payments of about $10.8 million to six offshore companies. Telcel used fictitious invoices for professional computer and contracting services to improperly record the payments. Telcel's internal controls failed to detect the payments for at least two years, and this lack of internal controls prevented BellSouth and Telcel from determining the recipients of the payments. This lack of oversight also appeared to prevent BellSouth and Telcel from determining the purpose of the payments.

In 1997, BellSouth acquired 40% of Telefonia with an option to purchase another 49%. Nicaraguan law prevented foreign majority ownership of Nicaraguan companies, so BellSouth could only exercise its option if the Nicaraguan Assembly repealed the law. In October 1998, Telefonia hired the wife of the Nicaraguan legislator to provide "regulatory and legislative services," or essentially lobby for the repeal of a foreign ownership restriction. BellSouth's in-house counsel approved the hire even though her husband chaired the legislative committee considering the foreign ownership restriction. Her husband eventually drafted the proposed repeal of the restriction, enlisted support from other legislators, and presided at a hearing in April 1999. Telefonia terminated the wife in May 1999, and in June 1999 paid her $60,000 as severance and for her services. In December 1999, the Nicaraguan assembly repealed the foreign-ownership restriction and BellSouth increased its ownership of Telefonia to 89% in June 2000.